Tax policy and employment considerations Nordic lessons and Latvian constraints Welfare Conference, 15 November 2012, SSE Riga Morten Hansen Head of Economics.

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Presentation transcript:

Tax policy and employment considerations Nordic lessons and Latvian constraints Welfare Conference, 15 November 2012, SSE Riga Morten Hansen Head of Economics Department Stockholm School of Economics in Riga

Outline Four bullet points to be addressed  Idea: There are some valuable lessons from the Nordic countries but there are also some Latvia-specific constraints not allowing for a blanket adoption of Nordic ideas Latvia – not a Nordic country by government spending Latvia – not a Nordic country by taxation Latvia – not a Nordic country by income equality Latvia – not a Nordic country by labour market participation, employment rate or unemployment rate

Total government revenue share of GDP, 2011, Nordics and Baltics

Latvia (and Baltics in general): Low tax & small state countries

Ranking: Wastefulness of government spending World Economic Forum, Global Competitiveness Report

Constraints in terms of taxation… A progressive tax is: ”an absurd ideology and the People’s Party will never support it” Mareks Segliņš, (then) Minister for Justice July 2009, Latvian TV -but reducing the non-taxed minimum during the crisis was brutal -high incomes and wealth (e.g. property) still taxed very lightly

Gini coefficient, 2010

Gini coefficient, 2000 – 2010 Latvia and the Nordic countries

Activity rates/participation rates, 15 – 64 years where the Nordics shine…

Employment rates, 15 – 64 years, where the Nordics shine again…

Unemployment rates, Baltics and Denmark Twenty years later, still high structural unemployment! Risk of bottlenecks

Just a few observations at the end… Latvian spending on active and passive labour market measures is low by EU27 standards. Should be many useful lessons from the Nordics. A Guaranteed Minimum Income (GMI) of 45 LVL per month cannot be enough to keep recipients from remaining structurally unemployed. Lowering GMI to 35 LVL will make matters worse. High level analysis and many recommendations in the World Bank report: /567470v20ESW0P00disclosed pdf?sequence=1

Thank you for your attention! Questions and comments are welcome Stockholm School of Economics in Riga Founded 1994